Heizer_om10_ch01 Productivity and Intro Feb 2016

8/18/2019 Heizer_om10_ch01 Productivity and Intro Feb 2016

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D R . H A B I B A H @ N O R E H A N H J H A R O N

MRSE 1513: OPERATIONS STRATEGY AND MANAGEMENT


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Syllabus MRSE 1513

TOPICS ASSESSMENT

IMPORTANT NOTES

..\sem 2-201516\Syllabus MDE MRSE 1513 OperationsSem2 1516 PT.docx

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Organizing to Produce Goods and Services

Essential functions:1. Marketing – generates demand2. Production/operations – creates the product3. Finance/accounting – tracks how well the

organization is doing, pays bills, collects themoney


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Organizational Charts

OperationsTellerSchedulingCheck ClearingCollectionTransactionprocessing

Facilitiesdesign/layoutVault operationsMaintenanceSecurity

FinanceInvestmentsSecurityReal estate

Accounting

Auditing

MarketingLoans

CommercialIndustrialFinancialPersonal

Mortgage

Trust Department

Commercial Bank

Figure 1.1(A)


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OperationsGround support

equipmentMaintenanceGround Operations

Facilitymaintenance

Catering

Flight OperationsCrew schedulingFlyingCommunicationsDispatching

Management science

Finance/accounting

AccountingPayablesReceivablesGeneral Ledger

FinanceCash controlInternationalexchange

Airline

Figure 1.1(B)

MarketingTrafficadministration

ReservationsSchedulesTariffs (pricing)

SalesAdvertising


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MarketingSales

promotionAdvertisingSalesMarketresearch

OperationsFacilities

Construction; maintenanceProduction and inventory control

Scheduling; materials controlQuality assurance and controlSupply-chain managementManufacturing

Tooling; fabrication; assembly

DesignProduct development and designDetailed product specifications

Industrial engineeringEfficient use of machines, space,

and personnelProcess analysis

Development and installation of

production tools and equipment

Finance/accountingDisbursements/

credits

ReceivablesPayablesGeneral ledger

Funds ManagementMoney marketInternational

exchangeCapital requirements

Stock issueBond issue

and recall

Manufacturing

Figure 1.1(C)


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Operations

One of the areas for competitive advantage isoperations, i.e. the production and delivery of both

goods and services to the customer.


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WHAT IS IT ABOUT?

Operations strategy ties up with the overall business strategy while operations managementensures that the operations are executed effectively,

efficiently and productively.


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Why Study OM?

1. OM is one of three major functions of anyorganization, we want to study how people organizethemselves for productive enterprise

2. We want ( and need ) to know how goods and servicesare produced

3. We want to understand what operations managers do

4. OM is such a costly part of an organization


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D R . H A B I B A H @ N O R E H A N H J . H A R O N

P O W E R P O I N T P R E S E N TAT I O N T O A C C O M PA N YH E I Z E R A N D R E N D E RO P E R AT I O N S M A N A G E M E N T , 1 0 EP R I N C I P L E S O F O P E R AT I O N S M A N A G E M E N T ,8 E

P O W E R P O I N T S L I D E S B Y J E F F H E Y L

1Operations and

Productivity


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Learning Objectives

When you complete this chapteryou should be able to:

1. Define operations management2. Explain the distinction between

goods and services

3. Explain the difference betweenproduction and productivity


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Learning Objectives

When you complete this chapteryou should be able to:

4. Compute single-factorproductivity5. Compute multifactor productivity

6. Identify the critical variables inenhancing productivity


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PRODUCTION IS THE CREATIONOF GOODS AND SERVICES

Operations Management

Operations management (OM) is the set ofactivities that create value in the form of

goods and services by transforming inputsinto outputs


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Characteristics of Goods

Tangible productConsistent productdefinition

Production usuallyseparate fromconsumption

Can be inventoriedLow customerinteraction


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Characteristics of Service

Intangible productProduced andconsumed at same time

Often uniqueHigh customerinteraction

Inconsistent productdefinitionOften knowledge-basedFrequently dispersed


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Gross domestic Product (GDP ) is amonetary measure of the value of all final goods andservices produced in a period (quarterly or yearly).

Nominal GDP estimates are commonly used todetermine the economic performance of a whole

country or region, and to make international

comparisons.

https://en.wikipedia.org/wiki/Measurement_in_economicshttps://en.wikipedia.org/wiki/Measurement_in_economics


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Goods and Services

AutomobileComputerInstalled carpeting

Fast-food mealRestaurant meal/auto repair

Hospital careAdvertising agency/

investment managementConsulting service/

teachingCounseling

Percent of Product that is a Good Percent of Product that is a Service

100% 75 50 25 0 25 50 75 100%| | | | | | | | |


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Manufacturing and Service Employment

120 –

100 –

80 –

60 –

40 –

20 –

0 – | | | | | | |1950 1970 1990 2010 (est)

1960 1980 2000

E m p

l o y m e n

t ( m i l l i o n s

)

Figure 1.4 (A)

Manufacturing

Service


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Development of the Service Economy

Figure 1.4 (C)

United States CanadaFrance

ItalyBritainJapan

W. Germany

1970 2010 (est)

| | | | |

40 50 60 70 80Percent


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The Hard RockCafe

The ―product,‖ includes more than tasty meals— the

layout, the memorabilia on display, and the service all

encompass the dining package from Hard Rock that

consumers now expect. The meals themselves are

designed, tested, and then analyzed for the cost of

ingredients, labor requirements, and customer

satisfaction. Among other tasks, the operations

manager must consider both the attractiveness and

efficiency of restaurant layout, supplier quality and

reliability, employee motivation and training,

maintenance of tight schedules, and preparation of

outstanding meals.

© 2011 Pearson Education, Inc.ublishin as Prentice Hall

• First opened in 1971• Now – 129 restaurants

in over 40 countries• Rock music memorabilia• Creates value in the form of

good food andentertainment

• 3,500 + custom meals perday in Orlando

• How does an item get on themenu?

• Role of the OperationsManager


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P L A N N I N GO R G A N I Z I N GS TA F F I N GL E A D I N GC O N T R O L L I N G

What Operations

Managers Do

Basic Management Functions


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Ten Critical Decisions

Ten Decision Areas Chapter(s)

1. Design of goods and services 52. Managing quality 6, Supplement 63. Process and capacity 7, Supplement 7

design4. Location strategy 85. Layout strategy 96. Human resources and 10

job design

7. Supply-chain 11, Supplement 11management8. Inventory, MRP, JIT 12, 14, 169. Scheduling 13, 1510. Maintenance 17

Table 1.2


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The Critical Decisions

1. Design of goods and services What good or service should we offer?How should we design these products and services?

2. Managing qualityHow do we define quality? Who is responsible for quality?

Table 1.2 (cont.)


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3. Process and capacity design What process and what capacity will these productsrequire? What equipment and technology is necessary forthese processes?

4. Location strategy Where should we put the facility?On what criteria should we base the locationdecision?

Table 1.2 (cont.)


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5. Layout strategyHow should we arrange the facility?How large must the facility be to meet our plan?

6. Human resources and job designHow do we provide a reasonable workenvironment?How much can we expect our employees toproduce?

Table 1.2 (cont.)


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7. Supply-chain managementShould we make or buy this component? Who should be our suppliers and how can we integratethem into our strategy?

8. Inventory, material requirements planning, andJIT

How much inventory of each item should we have? When do we re-order?

Table 1.2 (cont.)


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9. Intermediate and short – term scheduling Are we better off keeping people on the payrollduring slowdowns? Which jobs do we perform next?

10. MaintenanceHow do we build reliability into our processes? Who is responsible for maintenance?

Table 1.2 (cont.)


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Where are the OM Jobs?

Technology/methodsFacilities/space utilizationStrategic issues

Response timePeople/team developmentCustomer service

QualityCost reductionInventory reductionProductivity improvement


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Opportunities

Figure 1.2


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Contributions From

Human factorsIndustrial engineering

Management scienceBiological sciencePhysical sciencesInformation technology


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Organizations in Each Sector

Service Sector Example % of allJobs

Education, Legal,Medical, other

San Diego Zoo, Arnold Palmer Hospital 25.8

Trade (retail,wholesale)

Walgreen’s, Wal -Mart, Nordstrom’s 14.9

Utilities,Transportation

Pacific Gas & Electric, AmericanAirlines

5.2

Professional andBusiness Services

Snelling and Snelling, WasteManagement, Inc.

10.7

Table 1.3


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Service Sector Example % of allJobs

Finance,Information,Real Estate

Citicorp, American Express,Prudential, Aetna

9.6

Food, Lodging,Entertainment

Olive Garden, Motel 6, WaltDisney

8.5

PublicAdministration

U.S., State of Alabama, CookCounty

4.6

Total 78.8Table 1.3


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Other Sectors Example% of all

Jobs

ManufacturingSector

General Electric, Ford, U.S.Steel, Intel

11.2

ConstructionSector

Bechtel, McDermott 8.1

Agriculture Sector King Ranch 1.4

Mining Sector Homestake Mining 0.5

Total 21.2

Table 1.3


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New Challenges in OM

Global focusJust-in-time

Supply-chainpartneringRapid productdevelopment,alliancesMasscustomizationEmpoweredemployees, teams

ToFromLocal or national focusBatch shipments

Low bid purchasing

Lengthy productdevelopment

Standard products

Job specialization


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Changing Challenges

TraditionalApproach Reasons forChange CurrentChallenge

Ethics andregulationsnot at the

forefront

Public concern overpollution, corruption,child labor, etc.

High ethical andsocialresponsibility;

increased legal andprofessionalstandards

Local ornational

focus

Growth of reliable, lowcost communication and

transportation

Global focus,international

collaboration

Lengthyproductdevelopment

Shorter life cycles;growth of globalcommunication; CAD,Internet

Rapid productdevelopment;designcollaboration

Figure 1.5


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Changing Challenges

TraditionalApproach

Reasons forChange

CurrentChallenge

Low costproduction,with littleconcern forenvironment;free resources(air, water)ignored

Public sensitivity toenvironment; ISO 14000standard; increasingdisposal costs

Environmentallysensitiveproduction; greenmanufacturing;sustainability

Low-coststandardizedproducts

Rise of consumerism;increased affluence;individualism

Masscustomization

Figure 1.5


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Changing Challenges

TraditionalApproach

Reasons forChange

CurrentChallenge

Emphasis onspecialized,often manualtasks

Recognition of theemployee's totalcontribution; knowledgesociety

Empoweredemployees;enriched jobs

“In -house”production;

low-bidpurchasing

Rapid technologicalchange; increasing

competitive forces

Supply-chainpartnering; joint

ventures, alliances

Large lotproduction

Shorter product lifecycles; increasing needto reduce inventory

Just-In-Timeperformance; lean;continuousimprovement

Figure 1.5


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New Trends in OM

EthicsGlobal focusEnvironmentally sensitive production

Rapid product developmentEnvironmentally sensitive productionMass customizationEmpowered employeesSupply-chain partneringJust-in-time performance


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QUESTIONS – based on the VIDEO

What are some of the possible challenges faced in themanufacturing of the aircraft?

How many OM critical decisions are involved in theoperations?

What are some of the services (non-manufacturing

activities) critical decisions required atmanufacturing plant?


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Productivity


Is PRODUCTIVITY = PRODUCTION?

Is PRODUCTIVITY = PROFIT?

Is PRODUCTIVITY = PERFORMANCEMEASURE?

Is PRODUCTIVITY = all of the above?


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1 - 44© 2011 Pearson Education, Inc.ublishin as Prentice Hall

Productivity Challenge

Productivity is the ratio of outputs (goodsand services) divided by the inputs

(resources such as labor and capital)

The objective is to improve productivity!

Im po rtant Note!Produc t ion i s a m easure of outpu t

on ly and n ot a m easure of eff ic iency


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The Economic System

Feedback loop

Outputs

Goodsand

services

Transformation

The U.S. economic systemtransforms inputs to outputs

at about an annual 2.5%

increase in productivity peryear. The productivity

increase is the result of amix of capital (38% of 2.5%),

labor (10% of 2.5%), andmanagement (52% of 2.5%).

Inputs

Labor,capital,

management

Figure 1.6


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The Manufacturing System

Feedback loop

Outputs

Goods,services, by

products

TransformationProcess

Inputs

Labor,capital,

materials,management


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Improving Productivity at Starbucks

A team of 10 analystscontinually look for waysto shave time. Someimprovements:Stop requiring signatureson credit card purchasesunder $25

Saved 8 secondsper transaction

Change the size of the icescoop

Saved 14 secondsper drink

New espresso machines Saved 12 secondsper shot


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Improving Productivity at Starbucks

A team of 10 analystscontinually look for waysto shave time. Someimprovements:Stop requiring signatureson credit card purchasesunder $25

Saved 8 secondsper transaction

Change the size of the icescoop

Saved 14 secondsper drink

New espresso machines Saved 12 secondsper shot

Operations improvements havehelped Starbucks increase yearlyrevenue per outlet by $200,000 to$940,000 in six years.Productivity has improved by 27%,or about 4.5% per year.


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Measure of process improvementRepresents output relative to input

Only through productivity increasescan our standard of living improve

Productivity

Productivity =Units produced

Input used

Hospital productivity


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Hospital productivity


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Productivity Cycle

© 2013 HABIBAH HARON

Measurement

EvaluationPlanning

Improvement


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Productivity Measurement

Selection on operationunits to observeUnderstand product,production process, andinvolved staffDividing of input andoutput sourcesDesigning data collection

Selecting basic periodGaining deflatorinformation

Data collection andidentifying part to fix

Data synthesisCalculating productivityPreparing chart forproductivity index Analyzing productivity’strend


This procedure is based on Sumanth’s Model:


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Productivity Measurement

Two types:

Partial productivity Single factor

Total productivity Total factor productivity



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Partial Productivity

Productivity =Units produced

Labor-hours used

= = 4 units/labor-hour1,000250

Labor Productivity

One resourc e inp ut single-factor p roduc t iv ity


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Total Productivity

OutputLabor + Material + Energy+ Capital + Miscellaneous

Productivity =

Output and inputs are often expressedin monetary unit (RM)

Mult ip le reso urc e inp uts mul t i - fac tor p roduc t iv i ty


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Productivity calculation

Staff of 4 works 8 hrs/day 8 units/dayPayroll cost = $640/day Overhead = $400/day

Old System:

8 units/day32 labor-hrs=

Old laborproductivity = .25 units/labor-hr


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Productivity


Old System:

14 units/day Overhead = $800/day

New System:


Old laborproductivity

=New laborproductivity

= .25 units/labor-hr

14 units/day32 labor-hrs


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Productivity


Old System:


New System:


Old laborproductivity = .25 units/labor-hr


New laborproductivity = .4375 units/labor-hr


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Productivity


Old System:


New System:

=Old multifactorproductivity8 units/day$640 + 400


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Productivity


Old System:


New System:

8 units/day$640 + 400=

Old multifactorproductivity = .0077 units/dollar


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Productivity


Old System:


New System:

8 units/day$640 + 400=

Old multifactorproductivity

=New multifactorproductivity

= .0077 units/dollar

14 units/day$640 + 800


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Measurement Problems

1. Quality may change while thequantity of inputs and outputsremains constant

2. External elements may cause anincrease or decrease inproductivity

Precise units of measure may belacking

P d i i E l i


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Productivity Evaluation

By comparing between 2 periods of study or planned values – measuring the index• 1st quarter as based, evaluate performance of 2 nd quarter

Example:


Productivity index (1 st qtr) = .0077 units /dollar.0077 units /dollar

= 1

Productivity index (2 nd qtr)= .0115 units /dollar.0077 units /dollar

= 1.49

E i


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Exercise

Labour 520 hours at RM 13 per hour

Solvent 100 gallons at RM 5 per gallon

Equipment

rental 20 day at RM 50 per day

A laundry operator carried out maintenance work on its 65 dryer machines in

December last year using the resources shown in the table below:

i. Calculate the labor productivity

ii. With the introduction of GST, the costs for each of the resources increased by 6%.

Calculate the total productivity for the current month.iii. Using December as the base month, calculate the total productivity index for the

current month


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Productivity Variables

1. Labor - contributesabout 10% of theannual increase

2. Capital - contributesabout 38% of theannual increase

3. Management -contributes about 52%of the annual increase


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Productivity Planning

Set target based on company objectives andpolicy



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Productivity Improvement

Technology-basedEmployee-basedProduct-based

Task-basedMaterial-basedEnergy-based

Discuss – video



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Productivity Improvement Video



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Key Variables for Improved Labor Productivity

1. Basic education appropriate for thelabor force

2. Diet of the labor force3. Social overhead that makes labor

available

Challenge is in maintaining andenhancing skills in the midst of rapidlychanging technology and knowledge


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Labor Skills

About half of the 17-year-olds in the U.S. cannotcorrectly answer questions of this type

Figure 1.7


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Service Productivity


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Service Productivity

1. Typically labor intensive2. Frequently focused on unique

individual attributes or desires

3. Often an intellectual task performed byprofessionals

4. Often difficult to mechanize

5. Often difficult to evaluate for quality


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Productivity at Taco Bell

Improvements:Revised the menuDesigned meals for easy preparation

Shifted some preparation to suppliersEfficient layout and automationTraining and employee empowerment

New water and energy saving grills


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Productivity at Taco Bell

Improvements:Revised the menuDesigned meals for easy preparation

Shifted some preparation to suppliersEfficient layout and automationTraining and employee empowerment

New water and energy saving grills

Results:Preparation time cut to 8 secondsManagement span of control increasedfrom 5 to 30In-store labor cut by 15 hours/dayStores handle twice the volume with halfthe labor

Conserve 300 million gallons of water and200 million KwH of electricity each yearsaving $17 million annually


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Ethics andSocial Responsibility

Challenges facingoperations managers:

Developing and producing safe,quality productsMaintaining a clean environment

Providing a safe workplaceHonoring stakeholder commitments

P d ti it b fit


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Productivity benefits

Consumer - Higher living standards and betterservicesEmployee - Increased in bonus

Stakeholder - Higher dividendsOrganization - Increased in market shareNation - Healthier economy

Society - Improved national security


GLOBAL ISSUE


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End of Topic 1 – Introduction &

Productivity

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